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Merck: Corporate Rap Sheet

Merck

By Philip Mattera

For decades Merck had a sterling reputation for integrity and high-quality research in a pharmaceutical industry whose other major players were often regarded in a much less favorable light. For a long time Merck also avoided the merger mania that afflicted its rivals.

That reputation fell to pieces in the early 2000s amid revelations suggesting that the company had sought to suppress evidence of safety problems with its arthritis medication Vioxx. The company ended up paying billions of dollars to governments and individuals to resolve thousands of lawsuits related to its actions. The two major acquisitions that Merck eventually made—the pharmacy benefit manager Medco (later spun off) and drugmaker Schering-Plough—each brought addition controversies and litigation. Merck was also involved in one of the largest tax disputes ever with the Internal Revenue Service, and in 2007 the company paid more than $2 billion to resolve the matter.

Product Safety

During the 1960s Merck faced some controversy with regard to its arthritis medication Indocin. Although the U.S. Food and Drug Administration (FDA) had approved the drug, it later came out that the company had not tested it adequately for efficacy and side effects.

Starting in the mid-1970s, Merck was one of more than two dozen drug producers and distributors sued by large numbers of women who said they suffered from vaginal cancer and other medical problems because their mothers had used the drug diethylstilbestrol (DES). Despite evidence that DES caused cancer in animals, the drug had been widely prescribed for pregnant women to prevent miscarriages.

In 2001 Public Citizen released previously confidential federal and company documents indicating that Schering-Plough had repeatedly failed to meet government manufacturing standards at a drug plant in New Jersey. The FDA later announced it had found more deficiencies. The following year Schering agreed to pay $500 million in penalties to the federal government to settle charges relating to manufacturing violations at four plants dating back as far as 1998.

In 2001 press reports began to appear suggesting that Merck’s heavily promoted arthritis drug Vioxx (and a similar drug made by Pharmacia) might not be as safe as they were initially believed to be. In 2004 Merck withdrew Vioxx from the market after being notified that users were found to have an elevated risk of heart attack or stroke. Several weeks later, the Wall Street Journal, which had obtained internal company e-mails and documents, reported the Merck management appeared to have known about the risks of Vioxx for years and maneuvered to keep the information from derailing its blockbuster product.

A New York Times exposé suggested that Merck executives had deliberately taken as long as possible in addressing Vioxx safety problems. The Times went on to report that, nearly a year before Merck management had received the results of the clinical trial that it said prompted the recall, the company had received preliminary results of a separate study indicating the cardiovascular problem. And yet later, the Timesreported that, contrary to statements made by Merck, the company had cancelled plans for a clinical trial of its own back in 2002.

Soon the company was facing investigations by the Justice Department and the Securities and Exchange Commission along with thousands of lawsuits. As these pressures mounted, CEO Raymond Gilmartin resigned. In the first of those individual lawsuits to go to trial, a jury in Texas took just one hour of deliberation in 2005 to decide against the company and award $253 million in damages. In subsequent trials, Merck won some and lost others. In 2007 the company agreed to pay $4.85 billion to settle the remaining 27,000 lawsuits.

In 2011 the U.S. Justice Department announced that Merck would pay $950 million to resolve criminal charges and federal civil claims relating to the marketing of Vioxx. Under the agreement, Merck agreed to plead guilty to one criminal count of violating federal drug law and pay a $321.6 million criminal fine. The other $628 million covered the settlement of civil charges of off-label marketing of Vioxx and false statements about the drug’s cardiovascular safety. (In 2016 Merck agreed to pay $830 million to resolve a shareholder lawsuit that had accused the company of making false and misleading statements about Vioxx.)

In 2007 the New York Timesreported that Merck and Schering-Plough had conducted several studies of their popular cholesterol drug Zetia that raised questions about its risks to the liver, yet the companies never published those results. Similar charges of suppressing research results were made in connection with the companies’ Enhance medication. In 2009 Merck and Schering-Plough agreed to pay $41 million to settle class-action lawsuits charging that the companies withheld unfavorable results of a clinical trial of the cholesterol drugs Vytorin and Zetia.

In 2008 the FDA ordered Merck to correct numerous manufacturing deficiencies at its main vaccine plant in Pennsylvania.

Marketing and Advertising Controversies

In 1969 the FDA ordered Merck and Upjohn to tone down their claims regarding the efficacy of the antibiotic novobiocin and to add a warning label about serious side effects.

In 1994 Schering entered into a settlement with the Federal Trade Commission to resolve charges that the company’s advertising for its Fibre Trim diet product made false and unsubstantiated claims.

In 2008 Merck agreed to pay $58 million to settle charges brought by more than two dozen states that the company’s advertisements for Vioxx deceptively downplayed the health risks of the drug.

Pricing and False Claim Controversies

In 1996 Merck was one of 15 large drug companies that agreed to pay more than $408 million to settle a class action lawsuit charging that they conspired to fix prices charged to independent pharmacies.

In 2001 GlaxoSmithKline and other major pharmaceutical companies dropped a lawsuit they had filed to block a plan by the South African government to import relatively inexpensive drugs to deal with the country’s AIDS epidemic.

In 2003 it came to light that a physician in Louisiana had filed a whistleblower lawsuit accusing Merck of defrauding the Medicare and Medicaid programs by charging inflated prices for its Pepcid heartburn medication.

In 2004 Schering-Plough and two of its units agreed to pay $27 million to the federal government and to the state of Texas to settle allegations of healthcare fraud in connection with the submission of inflated reimbursement claims to the Medicaid program.

That same year, Schering-Plough agreed to plead guilty to criminal charges and pay criminal and civil penalties totaling $345 million to settle charges that it fraudulently priced its Claritin allergy medication. The amount included a $52.5 million fine for violating the Anti-Kickback Statute. Schering agreed to enter into a Corporate Integrity Agreement with Office of Inspector General of the U.S. Department of Health and Human Services. In 2006 Schering agreed to pay another $435 million to settle related federal charges.

In 2007 a federal judge ruled against Schering-Plough, AstraZeneca and Bristol-Myers Squibb in a lawsuit charging them with overcharging for certain drugs paid for by Medicare and other parties.

In 2008 Merck agreed to pay the federal government more than $650 million to settle charges that the company routinely overbilled Medicaid and other government programs and made illegal payments to healthcare professionals to induce them to prescribe its products.

In December 2011 the Massachusetts attorney general announced that Merck would pay $24 million as its part of a $47 million settlement reached with 13 drugmakers to resolve allegations that they overcharged the state’s Medicaid program.

In 2012 the Louisiana attorney general announced that Merck and four other companies would pay a total of $25.2 million to resolve allegations that they overcharged the state’s Medicaid program.

Anti-Competitive Practices

New Jersey-based Merck & Company was originally an early 20th Century offshoot of the German drug company then known as E. Merck. The U.S. business split from its parent (whose ownership interests were turned over to the federal government) so that it could go on operating under the alien property restrictions imposed during the First World War. In 1932 the two companies signed an agreement for the exchange of technical information and for dividing up the world to avoid having two different Mercks competing in the same market. The arrangement lasted until 1945, when it was dissolved as part of a consent decree resolving an antitrust suit.

In 1998 Merck reached agreement with the U.S. Federal Trade Commission (FTC) on changing its practices to address allegations that its Medco pharmacy benefit management business (acquired in 1993 and later spun off) had discriminated against drugs made by Merck’s competitors.

Merck was nonetheless hit with class action lawsuits in connection with Medco’s practices. In 2002 Merck agreed to pay $42.5 million to settle the cases, in the course of which internal records were made public that seemed to verify the allegations Medco’s favoritism toward Medco products.

In 2003 the U.S. Justice Department joined two whistleblower lawsuits that had been filed against Medco charging it with cheating the federal employees’ health plan by promoting the use of expensive Merck drugs over less expensive alternatives. Three years later, the company agreed to pay $137 million to resolve the cases.

In 2003 the FTC ruled that Schering-Plough and Upsher-Smith Laboratories violated federal law when Schering paid the other company $60 million to keep generic versions of a Schering heart medication off the market in the late 1990s.

Taxes

In 2004 Merck disclosed that it might owe the U.S. Internal Revenue Service (IRS) some $2 billion after the agency notified the company that it was disallowing deductions Merck had taken since 1993 relating to a partnership set up in 2003 as a vehicle for obtaining financing for the acquisition of Medco.

In 2006 the Wall Street Journalreported that Merck had set up a subsidiary in Bermuda that, in partnership with a British bank, was given title to the patents for the company’s blockbuster cholesterol drugs Zocor and Mevacor, thus saving Merck an estimated $1.5 billion in federal taxes over ten years.

Shortly thereafter, Merck disclosed that it was embroiled in four separate tax disputes in the United States and Canada with total potential liabilities of more than $5 billion. In 2007 the IRS announced that Merck had agreed to pay $2.3 billion to settle its federal tax disputes.

In 2009 a federal court denied Schering-Plough a $473 million refund the company had claimed on its taxes in connection with two transactions in which the company sought to avoid taxation on $690 million in profits it had repatriated from offshore subsidiaries.

Bribery

Merck, along with many other companies, revealed in the mid-1970s that it had made foreign payoffs to obtain business abroad.

Labor

In 1984, after members of three unions at Merck’s production operations in New Jersey refused to accept management demands for extensive contract concessions such as a two-tier wage system and cuts in medical benefits, the company locked out more than 700 workers. This prompted some 3,000 Merck employees around the country to walk off the job as a gesture of solidarity. The Oil, Chemical and Atomic Workers union (now part of the Steelworkers) took the lead in launching a corporate campaign against the company that included the formation of an alliance with public interest groups to oppose Merck’s high drug prices. The dispute was settled after three months when both sides agreed to a compromise package.

Environment

In 2007 Merck agreed to spend $9 million on new pollution-control equipment and pay $1.6 million in penalties to settle charges relating to Clean Water Act violations at its plant in Montgomery County, Pennsylvania.

In 2011 Merck agreed to pay a $1.5 million civil penalty to resolve allegations that two of its plants in Pennsylvania violated the Clean Air Act.